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Long: PLBY, PSA, FWONK, ROK, AMH, CUBE, PCAR, BIRD, WYNN, SBEA, AVB, COIN, RIVN Short: RRGB, COLD |
Below are updates on our seventeen current high-conviction long and short ideas. We have removed Dutch Bros (BROS), Dufry (DUFRY), and Petco (WOOF) from the long side. We also added Black Rifle Coffee Company (SBEA) to the long side. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.
PLBY
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Long Thesis Overview: We think that the upside here is simply massive. 10-bagger over TAIL duration. Ideas like this come along once every few years. I know that it’s too thinly traded now for a lot of institutions to get involved, but that dynamic should change dramatically over the next 1-3 years while the P&L, Cash Flow, Balance Sheet and float characteristics catapult themselves worlds head of the consensus. |
This week PLBY took another major step in officially launching its Big Bunny collection. As a reminder, Big Bunny is an upscale line of clothing and travel accessories written on the website as “Ready-to-wear styles inspired by the plane that transcended culture”.
Playboy continues to take steps in the right direction towards monetizing all the brand value the company possesses. The Playboy Brand does $3bn in global spend but only recognizes a small portion of that due to its horrendously low 2% blended royalty rate.
Initiatives like Big Bunny and others coming down the pike allow Playboy to recognize much more of that global spend on its own P&L by capturing 100% of the dollars of revenue.
PSA & CUBE
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Long Thesis Overview: We can keep this short - all that really matters for Best Idea Long PSA is that the company inaugurated FY21 FFO guidance with full ranges for all the key drivers (SSRev, SSExp, SSNOI, Development, Acquisitions, etc). Not only does this bring PSA up to par with the other four peers in the space, but it signals management's ongoing commitment to address long-time shareholder gripes regarding engagement with the street, governance, capital deployment, balance sheet efficiency, etc. All of these items are core to the long thesis for accelerating earnings growth and a positive re-rating of the stock. Long Thesis Overview: This is a "keep it simple and straightforward" type of call: (1) the subsector is highly correlated internally given the submarket overlap and works well in an inflationary environment, (2) CUBE backtests well in each of Quads 2-4, (3) upward earnings revisions are extremely likely and a positive catalyst, and (4) CUBE's balance sheet is a huge strategic and style factor advantage. |
Best Idea Long CUBE announced last week that it had closed on its ~$1.7 billion acquisition of the 59-asset Storage West portfolio, which we estimated will be $0.03 to $0.04/share accretive to Core FFO earnings in FY22. The company funded the acquisition via the issuance of ~$790 million of equity plus $1.05 billion of unsecured debt at a sub-2.5% coupon. CUBE remains our favorite long idea in self-storage (which we are generally long of), and numbers next year and beyond are likely still too low with a clear line of sight to a RoC acceleration through mid-year. The stock is still signaling BULLISH TRADE/TREND/TAIL.
Regarding Long Bench PSA, we have been digging into the model again and are finding two things: (1) the RoC profile largely mirrors the other self-storage names, specifically things dramatically slow down beginning 3Q21, and (2) consensus has largely caught up with our previously Street-high numbers on the name. With that said we are staying long here, but see more upside in CUBE and LSI purely from a numbers perspective. The stock will continue to work with the rest of the group (winners win into year-end) which is highly correlated internally, and coincidentally PSA has been a good Quad 4 option among REITs.
FWONK
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Long Thesis Overview: In 2020, F1 reached a new Concorde agreement for the 2021-2025 seasons that will meaningfully improve the economics of a race. Liberty has also focused on entering more attractive, long-term race deals like the Vietnam and Miami Grand Prix agreements. We believe there is more grease on the wheels. Liberty can maximize its efforts to increase interest in the sport, continue to go after underpenetrated markets, and use its SVOD service to capitalize on its content more efficiently. The most significant area of improvement for F1 is their sponsorship and partner agreements. We believe there is ample opportunity in sponsorship with only 17 races out of the record-breaking 23 race calendar having a title sponsor and F1 lacking many low-hanging partnerships such as fuel and hospitality providers. |
"Lewis Hamilton won a controversial debut Saudi Arabian Grand Prix from pole position ahead of Max Verstappen and Valtteri Bottas amid two red-flag stoppages. The result means the two championship protagonists go to the Abu Dhabi finale level on points.
Abu Dhabi hosts the season finale, and with Hamilton having taken 26 points to Verstappen's 18 here, the championship protagonists are now equal on 369.5 points. But the fallout from Jeddah may well continue through the night, with the stewards set to investigate Hamilton and Verstappen's Turn 27 tussle after the race." - Source: Formula1.com
ROK
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Long Thesis Overview: We expect this to be an unusually good cycle for ROK as developed market automation investment benefits from less ‘offshoring’ of production amid higher emerging market labor costs and other considerations. The capabilities for automation technologies, from machine vision to software to 5G and the like, broaden the market opportunity substantially. Despite being one of the best businesses in our coverage, shares of ROK don’t yet sport the premium valuation we’d expect them to receive as organic growth accelerates through 2H21. |
Higher inflation and rising wages increase the value of factory automation investment. EVs are a good example of the rebound in ROK's markets. In Rivian’s first earnings call as a public company, it announced a plan to build a $5 billion vehicle plant outside of Atlanta. The investment should double the size of Rivian'a vehicle production capacity by 2024. Rockwell is Rivians factory automation supplier.
We see shares of ROK as offering favorable exposure to a number of key trend from tightening capacity utilization and supply chain challenges to higher emerging market wages and increased developed market manufacturing. ROK is typically a Quad 1 beneficiary, which we see as a tailwind into 2022.
AMH
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Long Thesis Overview: On balance, we see the data as very supportive of the long-term SFR long thesis in general, but in particular AMH with its captive "bank" of lot inventory and unique development program set against an extremely tight supply environment. As the space matures and grows more competitive given the outsized yield opportunities, operators with pre-sourced inventory to control, build and deliver have a massive advantage. |
We remain very bullish on Best Idea Long AMH, with an interesting setup for FY22 where we (1) remain long the Coastal Gateway Apartments (2) potentially paired against a Sunbelt Apartment short while (3) remaining long Sunbelt SFR. AMH’s 4Q21 results are the next catalyst where the company will provide its FY22 outlook which should surprise to the upside. Concerns on slowing against “tough” comps are overblown, and the company is likely to deliver ~$1.70 per share of Core FFO earnings power in short order versus ~$1.35/share currently.
HPA leads leasing spreads by 3-4 quarters, which in turn lead actual results and earnings by another 2-3 quarters. The trend in HPA for AMH’s markets shows an acceleration in the RoC on leasing spreads and earnings likely through FY22, and there is zero chance this is accurately being reflected in consensus numbers right now.
We do believe the buyside is catching up here, however.
PCAR
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Long Thesis Overview: The truck industry should undergo a major structural change this quarter with the spin-off of Daimler Truck. We expect Daimler to seek higher margins via pricing. Hints of that are seen in the delays for opening build slots for 2022. If we are reading that correctly, we think PCAR and Volvo are straightforward beneficiaries. |
Last Friday Daimler Truck separated from parent Daimler AG. We suspect that this independent company will change the industry focus toward high margins and prices. While North American Class 8 orders for November came in at only 9,500. While this is the lowest intake since May 2020, long lead times and record backlogs limit the value of the build slots on offer. Full order books combined with easing supply chain bottlenecks should allow for higher revenue in early 2022, particularly as the macro environment brightens in 1Q22.
BIRD
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Long Thesis Overview: From where we sit – 30% annual top line is a slam dunk for this brand – especially given that it has only 11% brand awareness, with huge upside for new customer acquisition. Though it’s currently losing money on roughly $250mm in sales – 100% of which is DTC (i.e. extremely attractive) – the EBIT margin structure is likely to clock in at a 15%-18% level over a TAIL duration on nearly 3x the revenue base. That puts about $0.75 per share in earnings in play. |
There were puts and takes on BIRD’s first print out of the gate, but overall, we definitely liked what we saw out the company. The market wigged out over the headline EPS miss, but operating results were in line with the company’s preannounced range.
The biggest bear case we’ve heard is that revenue growth in the core US market is tapped out – as evidenced by the flattish growth in the region in 2020. But the flat growth in 2020 was a function of the innovation cycle and the lack of new platform launches.
This year we saw the launch of multiple new platforms and colorways which accelerated growth in the US meaningfully to 42% and will continue to drive growth for the company. We think the bear narrative looks at the past, while the real opportunity here is what this company could become and grow to in the future.
WYNN
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Long Thesis Overview: If history has taught us anything, it’s that BIC makes a great lighter and in the casino world, BICs catch fire during recoveries and generally outperform the competition. Per our math, WYNN is indeed outperforming in the USA. Macau is the wildcard, and with all the fits and starts it’s impossible to discern a trend. However, we’re optimistic that WYNN will outperform there as well when the market stabilizes and recovers. |
If history has taught us anything, it’s that BIC makes a great lighter and in the casino world, BICs catch fire during recoveries and generally outperform the competition. For Las Vegas, more events are on the way and the catalyst calendar for the next 2-3yrs continues to bulk up for the LV Strip.
This coming year will see the NHL All Star Game, the NFL Pro Bowl, the NFL Draft, a host of new A-List residencies, and conventions. The year after will likely see more conventions as excess capacity at the LVCC and the resorts continue to fill up. Finally, the mega convention Con/Agg will return to Las Vegas in Q1’23. But then what? How does the market comp that comp? Confirmation that the Super Bowl is coming to town ’24 sounds like a pretty good start.
One event might not seem like a lot on the surface, but historically Super Bowl weekends account for some of the biggest compression nights of the year with RevPAR growth over the weekends routinely growing anywhere from 300% to even 500%. We think an event like the Super Bowl could at least yield up to 100-150bps of contribution to annual RevPAR growth, and WYNN should benefit from all this action.
WYNN remains a Best Idea Long at Hedgeye.
sbea
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Long Thesis Overview: Black Rifle Coffee Company (BRCC) is a veteran-founded coffee company. The company was founded in 2014 by Evan Hafer, a Green Beret. BRCC is a mission-focused company committed to supporting veterans, active-duty military, and first responders. BRCC has targeted the $28B coffee category as its serviceable addressable market. Our military is the most respected institution in the country according to Gallup polls. Veterans are 7% of the population while the active-duty military is less than 0.5%. Half of the company’s employees are veterans. BRCC also gives preference to veteran-owned businesses as vendors and suppliers. The company's three-pronged growth strategy is driving 30%+ top-line growth. |
Hedgeye CEO Keith McCullough recently added Black Rifle Coffee Company (SBEA) to the long side of Investing Ideas. Below is a brief note.
The Fed didn't make a policy mistake here this afternoon. They're tapering - the market knew that. They guided to not raising rates "until we see full employment", which isn't happening anytime soon.
SPY's Vol of Vol just made another lower-high on the VIX. That's bullish. I was waiting on buying some smaller cap ideas until I saw the Fed's river card here today. SPY continues to signal pending new all-time highs too.
AVB
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Long Thesis Overview: FY21 Guidance: 4Q21 Core FFO projected in the range of $2.19 to $2.29 on SSNOI +5.5% to +7.5%, so as expected SSNOI growth now definitely inflecting positive after JUST missing the crossover point in 3Q (-0.2%). This compares to Hedgeye at $2.20 and +9% for 4Q21, so we need to (1) take numbers up but also (2) re-work the mix between same store and non-same store contribution. Consensus was at $2.13 on 4Q21 coming into the print - thanks for coming out! |
Best Idea Long AvalonBay Communities, Inc. (AVB) was just added to Investing Ideas two week ago. Nothing really to update since our first note other than that Coastal Gateway market rents continue to accelerate as some Sunbelt markets begin to roll over from a RoC standpoint. We are generally long the Coastal Gateway Apartment REITs (AVB, EQR and ESS) which will likely have the best year in their histories in FY22 from a SSNOI growth perspective, and AVB remains our favorite in the group.
The group is several quarters behind the Sunbelt REITs in terms of recovery and return to prior (nominal) peak on rental rates, with accelerating leasing spreads and much less unit supply on the horizon as well.
The RoC on SSRev, SSNOI and Core FFO earnings growth will continue to accelerate through at least 3Q22. We think SSNOI will grow in the mid-teens range next year (we model +14%) and are +10% ahead of consensus on Core FFO earnings estimates, implying that the Street is somewhere in the mid-to-high-single digit range on SSNOI growth which makes no sense. The stock is BULLISH TRADE/TREND/TAIL with among the strongest signals among the REITs we cover.
COIN
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Long Thesis Overview: Back in June, we hosted a Coinbase bull-bear debate in which we profiled the risk-reward setup for the broader digital asset space as well as Coinbase, the largest U.S. cryptocurrency exchange. The detailed bull case for Coinbase can be reviewed in that presentation. With the continued, widespread growth of the crypto asset class, and what had been a cooler third quarter, we are adding Coinbase (COIN) as a new Best Idea Long based on the strong October trends and the longer-term, secular growth tailwinds across the crypto-verse. |
Click HERE to watch Hedgeye CEO Keith McCullough break down why he was buying crypto-related equities (like Coinbase (COIN)) on the dip over the past couple days.
RIVN
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Long Thesis Overview: The well-funded electric vehicle start-up offers vehicles in the higher value segments of the auto market with innovative ‘adventure vehicles’, the R1T pick-up truck and the R1S SUV. On the commercial vehicle side, Rivian is a prospective supplier to Amazon with its EDV platform…positioning the company as another front for the Bezos v. Musk twelve-digit billionaire battle. |
While shares of Rivian should follow the EV bubble, it is a more credible competitor than several other exceedingly overvalued EV names. It has two attractive offerings in categories that constitute ~80% of auto demand in the US: the R1T pickup truck and R1S SUV. The Rivian brand resonates with car buyers, ranking ahead of Tesla and well ahead of Polestar. Production delays in the earnings call were telegraphed well ahead of the guidance reductions.
That said, investor skepticism in the space is likely to persist leaving shares of RIVN a better positioned competitor in a volatile, not-buy-and-hold industry.
RRGB
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Short Thesis Overview: Restaurants that we could operate at total capacity saw comparable restaurant revenue increase 7.0% from the pre-pandemic comparable quarter. In addition, margins at these restaurants reached 19.5%, a 180 bps increase. However, overall comparable restaurant sales are still down 2.4% compared to 2019. Nothing exciting to see with Red Robin Gourmet Burgers (RRGB). |
Darden Restaurants (DRI) was the first casual diner to report October and November month results because of its different year end. While SSS were up 34.4%, it decelerated from 47.5% sequentially.
Despite raising its sales outlook for Fiscal 2022 wage pressure received more attention: "Given the strength of our performance, we are accelerating a commitment we announced earlier this year to increase the minimum hourly earnings for restaurant team members to $12, which includes income earned through gratuities, effective 1-Jan-22. With this change, we expect our restaurant team members will earn, on average, approximately $20 per hour."
Red Robin is further challenged by its lower average check and less differentiated menu compared to other casual diners.
COLD
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Short Thesis Overview: Simply put, COLD is uniquely vulnerable given (1) its position in the “cold chain,” (2) the structure and mix of its revenue agreements, (3) the composition of its cost structure and high labor component, (4) the risk of integrating recent large acquisitions materializing at exactly the wrong time, and (5) consensus numbers that, in our view, were far too high both in FY21 but especially FY22 and beyond. |
Still nothing new to report on Best Idea Short COLD until the next USDA commodity cold storage data. In general it will be quiet save for (1) the monthly data release from the government, (2) the ultimate conclusion of the CEO search and (3) 4Q21 results in February.
We received the most recent USDA report on cold storage commodity levels two weeks ago, which showed that stock levels increased sequentially from September into October as expected, however the stock levels ticked down to 93% of prior year levels versus 94% in the prior month. Commodity stocks should be building on an absolute basis quarter-over-quarter ahead of the key holiday period, however we believe the metric to watch is % of prior year levels.
We remain bearish from a fundamental perspective until COLD likely “kitchen sinks” its 2022 outlook in February.
We expect a USDA data catalyst next week or in between the Christmas and New Year holidays.
